Revoking Apparent Authority in Executive Severance Agreements
Apparent authority binds the principal to third parties until direct notice or administrative act extinguishes the reasonable belief of agency.
indemnification failure
Meaning
The inability or refusal of an entity or insurer to hold a covered director, officer, or counterparty harmless against third-party claims, damages, or legal costs constitutes a breakdown of contractual risk shifting. An indemnification failure occurs when corporate charter provisions, indemnity agreements, or director and officer insurance policies fail to advance defense fees or cover losses due to insolvency, exclusions, or procedural defects. The concept applies specifically to third-party loss protection and excludes direct breach of contract actions between the primary parties.
Insurance policy declarations, written demand letters, corporate bylaws, and reservation of rights notices provide the evidentiary basis for evaluation.
Coverage Void
Statutory restrictions and policy exclusions create gaps where expected legal defense funding does not materialize. When corporate funds are depleted during insolvency, an indemnification failure leaves individual officers personally liable for corporate liabilities. Reimbursing legal expenses out of personal savings drains executive capacity and financial resources.
Documented policy terms dictate the limits of financial protection.
Procedural Oversight
Strict notice requirements and defense consent clauses in indemnity contracts determine whether coverage remains enforceable. An indemnification failure often stems from late written notification to the indemnifying party or insurer following a legal demand. Legal counsel must track notice deadlines meticulously to preserve coverage rights.
Timely written communication secures protection.
Corporate Exposure
Unfunded legal defense obligations threaten board stability and discourage executive recruitment. Experiencing an indemnification failure forces individual leaders to secure independent legal counsel at substantial personal expense. Structuring enforceable indemnity agreements with solvent entities mitigates financial vulnerability.
Written commitments require institutional backing.